Pressure built Friday on the Federal Reserve to signal whether it's ready to begin scaling back its controversial economic stimulus efforts, after a status-quo May jobs report from the government sparked an unusual Wall Street rally.
Nonfarm payrolls rose by 175,000 in May, the Labor Department reported, while the unemployment rate inched up to 7.6 percent because more potential workers returned to the labor force to look for jobs. On the face of it, that was no reason for stocks to soar. But investors had feared a better report — and they rallied on the status quo.
They worry that the Fed soon will start undoing its controversial purchases of government and mortgage bonds, which have boosted the stock market. The purchases are part of an effort called quantitative easing, now in its third incarnation and dubbed QE3, in which the Fed buys $85 billion a month worth of bonds, driving down their return to investors.
Because these bonds pay so little, investors are forced into riskier bets with high returns. The Fed's effort has boosted stocks at the expense of many bond investors or those who keep money in certificates of deposit. Financial markets took Friday's report to mean that the Fed won't start tapering off its support for the economy until late this year.
"It doesn't change the outlook for jobs or the Fed taper of QE3," said Scott Anderson, the chief economist for San Francisco-based Bank of the West. "You can read into this month's payroll report just about anything you like. Bulls and bears will both find something to support their case. The truth is somewhere in between."
The bulls carried Wall Street on Friday, as the Nasdaq, S&P 500 and Dow Jones Industrial Average all posted gains.
In coming days, however, there will be great investor attention to hints in the speeches of Fed governors ahead of the June 18-19 meeting of the rate-setting Open Market Committee. "The Fed is unlikely to taper off the pace of bond purchases based on today's number," said Nariman Behravesh, the chief economist for forecaster IHS Global Insight.